Russia: Yeltsin Reorganizes Arms Trade

Moscow, 22 August 1997 (RFE/RL) - President Boris Yeltsin sacked his top arms dealer Thursday, and further decreed a major reorganization of Russia's arms exports system, boosting government control over the country's multi-billion dollar arms sales.

Yeltsin fired general director of Rosvooruzhenye, Alexander Kotyolkin, and put Yevgeny Ananyev, one of the defence industry's top bankers, in charge of this gigantic arms business, which currently controls more than 95 percent of Russia's arms exports. According to the Thursday package of presidential decrees, this state-owned company will, from now on, have to share its lucrative business with two other state-controlled businesses: Promexport and Rossiskye Tekhnologii, as well as with dozens of arms makers.

The reorganization package charges Promexport and its newly appointed head Vyacheslav Filimonov with selling off those arms and ammunitions decommissioned by the armed forces. Promexport will be required to channel all of its profits from the obsolete arms to fund the much-needed military reform, including payments of compensations to retiring servicemen.

As for Rossiskye Tekhnologii, it is to export those of Russia's high- and advanced-military technologies, which are not regarded as "top secret."

Until yesterday, Ananyev had run the MAPO bank, which is closely affiliated with VPK MAPO that makes the famed MiG warplanes.

Formed after the collapse of the USSR, Rosvooruzhenye, almost monopolised Russia's arms exports, formerly supervised by three Soviet-era businesses (Spetsvneshtekhnika, Obornexport and Voentekh).

Until Thursday, Rosvooruzhenye's virtual monopoly had been challenged by fewer than a dozen of Russia's defence industry flagships, which Yeltsin personally allowed to export their lethal products without Rosvooruzhenye oversight. Last year, these arms makers managed to score a total of only $150 million of the $3.5 billion worth of Russian-made arms, accounting for only five percent of arms exports, with the rest brokered by Rosvooruzhenye.

This gap will inevitably narrow in the next few years, as the number of arms makers and brokers, armed with export licenses, will grow in strict accordance with Yeltsin's decrees. These decrees charge the Ministry of Foreign Trade, which is reported to be seeing to boost its own presence in Russia's arms exports, to devise an official register of what is formally described as "Russian organisations that have the right to carry out exports of military-use products."

Also to be compiled, is a list of lethal goods that could be exported without any damage to Russia's state security, as well as a list of countries to which that Russian-made arms could be sold.

Meanwhile, Yeltsin will personally consider whether to sanction every arms exports deal, until these lists are compiled and approved.

Contacted yesterday by our Moscow military affairs correspondent, Russian arms manufacturers welcomed the changes that promise an end to Rosvooruzhenye's virtual export monopoly.

"I think Rosvooruzhenye is a redundant structure that rips-off our money... we surely have our own smart people to market and sell abroad," said a Moscow representative for the Irkutsk Aviation Production Association (IAPO), which makes the famed Sukhoi fighters.

IAPO has already assembled dozens of Sukhois for India, and is expected to build a dozen of Su-30K fighters Indonesia said it wants to buy from Russia. Russian arms makers have repeatedly accused Rosvooruzhenye of charging excessive commissions of up to 12 percent, although the company maintains it never charges above five percent.

However, officials at Rosvooruzhenye tell RFE/RL that they find the announced reforms "dubious," and that they are "worried" by "the pressure" on their company and its top managers. They said the break-up of their company's monopoly, the ouster of Kotyolkin and Yeltsin's order to devise a new management and personnel composition of the company within two months could influence Rosvooruzhenye's ambitious plans to double its exports this year.

Both Russian arms makers and Western defence analysts claimed the opposite, however.

The access of more arms makers and brokers will heat up competition and "this has to be good," Peter Felsted, editor of "Jane's Intelligence Review" told RFE/RL Thursday. In addition to competition, he said, Russia will continue to prevail from "tending not to link arms exports to human rights issues, as it is the case with the planned sale of (warplanes) to Indonesia. "This certainly gives Russia an edge over the U.S. and Britain," he said.

Sand began to drift under Kotyolkin's feet after his powerful patron and presidential body guard Lt. General Alexander Korzhakov fell out of favor with Yeltsin. Korzhakov -- who patronized Russia's military-industrial complex and was instrumental in giving Kotyolkin the job of Russia's chief arms trader -- lost his job last year after calling for presidential elections to be delayed.

Since then, rumors predicting Kotyolkin's ouster and a reshuffle at Rosvooruzhenye have fallen in and out of the Russian media, as Kremlin factions clashed for control of this big source of hard-currency revenues.

These rumors gained momentum after Yeltsin said last month he was upset with how Russia exports its arms, and ordered Prime Minister Minister Viktor Chernomyrdin to supervise this sphere. The Prime Minister scrambled to fulfill Yeltsin's order, saying July 30 that "it is time (Russian arms dealers) learn (how to sell) and we will teach how."

The first lesson appears to have been taught Thursday.

Kotyolkin was finally dismissed by Yeltsin, following what reports said was Chernomyrdin's personal recommendation.